Chapter 2

Banking and Digital Payments

1. Role and importance of Reserve Bank of India

2. National Payments Corporation of India (NPCI)

Establishment= RBI+IBA(Indian Banks’ Association)

What is NPCI?
The National Payments Corporation of India (NPCI) serves as an umbrella body for the operation
of retail payment in India. This organization was established by the Reserve Bank of India along
with the Indian Bank’s Association. NPCI was incorporated in December 2008 and was centrally
promoted by the Reserve Bank of India. The Certificate of Commencement of Business was
issued in April 2009.

Objectives of NPCI
The National Payments Corporation of India (NPCI) was under the support of the Reserve Bank
of India (RBI) and Indian Banks’ Association (IBA) with an aim of consolidating and integrating
various systems into nation-wide uniform and standard business process that can be used as a
retail payment system. Another major objective of NPCI was facilitating an affordable payment
system that can help the common people during financial inclusion.

Under the PSS Act, 2007 as per the authorisation of RBI, NPCI can operate the following
payment systems:

1. National Financial Switch (NFS)

2. Immediate Payment System (IMPS)
3. Affiliation of RuPay Cards (debit cards/ prepaid cards) issued by banks and co-branded
credit cards issued by non-banking financial companies (NBFCs) or any other entity
approved by the RBI.
4. National Automatic Clearing House (ACH)
5. Aadhaar Enabled Payments System (AEPS)
6. Operation of Cheque Truncation System
Read about the difference between NEFT and RTGS in the linked article.

Products of NPCI

Some of the current products that were launched under the National Payments Corporation of
India are discussed below:

1. RuPay: It is a domestic card scheme of India that has a magnetic stripe along with an
EMV chip. The card is now accepted at all ATMs and has been issued by 300 cooperative
banks and Regional Rural Banks (RRBs) in India. (Get the list of RRBs in India in the linked
article.)
2. National Common Mobility Card: Also known as Rupay Contactless card, it is a
contactless payment technology that allows cardholders to use their card in the
contactless payment terminals without the need to physically swipe or insert the card.
3. Bharat Interface for Money (BHIM): Bharat Interface for Money (BHIM) is a mobile
payments application based on NPCI’s Unified Payments Interface (UPI). It provides the
facility to easily send or receive money from other customers using the UPI. To know
more in details on BHIM, refer to the linked article.
4. Unified Payments Interface (UPI): Unified Payments Interface (UPI) was introduced on
11th April 2016 as an instant inter-bank payment system. This payment system was
developed to provide a mobile platform for instant transfer of funds between two bank
accounts. To know more about Unified Payments Interface, refer to the linked article.
5. Bharat Bill Payment System: The Bharat Bill Payment System is an initiative taken by
NPCI along with the Reserve Bank of India (RBI) for payment of all bills which will provide
an interoperable and accessible bill payment service to its customers.

National Payments Corporation of India is an initiative of the Reserve Bank of India and the
Indian Banks’ Association. Its Immediate Payment Service (IMPS) has enabled India to become
the leading country in the world in real-time payments in the retail sector.

NPCI- it provides infrastructure to the entire banking system in India for both physical and
electronic payment and settlement systems

Products of NPCI

ü RuPay

ü Nach

ü NETC

ü IMPS

ü NFS

ü BHIM

ü UPI

ü *99#
 3. Digital Banking- It is also called online/ethical/sustainable banking

Digital Products

4. Online request of chequebook

5. Checking account balance

6. Digital transactions(Mobile recharge, bill payments)

7. Fund transfer to the same bank account and some another account

8. Online KYC

9. Changing passcodes

10. Creating accounts

11. Fee payments

12. Open some other accounts (DMAT, Recurring account and so on)

13. FD creation and renewal etc

14. Online Bank statement

15. Other services

16. E-chequebook, e-drafts, e-DD

17. Mobile Banking

4. Digital Banking- Do’s and Don’ts

5. Digital Payments / electronic payments

Digital payments refers to transferring an amount of money to another account (individual,

person, business etc) through the internet without the requirement to handle physical cash
such as phone, PoS (Point of Sale) or computer etc.

6 Modes of Digital Payments

 ü Debit Card

ü Credit Card

ü Prepaid Card- stored value card

7. EMV Technology

POS- DONE IN THE CLASS

Digital Payment Initiatives

1. Credit Cards- Plastic or metal card, 16-digit card number having EMV chip/security
chip, CVV, expiry, name, bank name of client and signature. these cards are not
linked to your bank account.
2. Debit Cards- Bank card (linked with your bank account), unlike credit card, no
interest is charged, processor - Visa, mastercard and Rupay, EMV chip, CVV number,
all details of client.
3. Prepaid Cards- also known as stored value cards or Prepaid debit cards . Many
banks like HDFC, SBI, ICICI, Axis etc are offering prepaid cards like gift cards, foreign
travel cards, meal cards etc. These cards are not linked with your bank account.
4. Aadhaar Enabled Payment System (AEPS)-
An initiative taken up by- The Unique Identification Authority of India (UIDAI)
An aadhaar number is important for the verification of all the financial transactions

The importance of an aadhaar number or card can be realized from the fact that now
for each and every activity like opening of bank account, purchasing a mobile
network, creating a voter id, etc linking with aadhaar is necessary. it facilitates
keeping track of an individual’s actions.

NPCI- National payment corporation of India has launched an Aadhaar -enabled

payment system which is a biometric enabled payment system where people can
use their aadhaar information to make bank payment from their aadhaar-linked
bank account.

5. Net Banking- Net banking is also called internet banking, enables customers to
access all the banking services of a bank or financial institution and perform
transactions online.

Banking services

● Transfer funds like NEFT, IMPS or RTGS

● Bank statements
 ● Online borrowing money
● requesting cheque book
● A request of creation, renewal or cancellation of PPF, FD or recurring deposits.
● Pay utility bills- credit card bills, electricity bill, mobile recharge, insurance plan,
policy, LIC etc

Types of Funds Transfer available

1. National Electronic Fund Transfer (NEFT)- It is used to transact one to one transfer
without and time restriction (24*7*365). it generally takes 30 minutes to three
hours to complete the transaction and customer can transfer upto Rs. 50,000 even
he doesnt have an account opened with the bank by visiting the branch personally.
2. Real- Time Gross Settlement (RTGS)- No time restriction (24*7*365) and this is
Order by order transaction. Funds are transferred immediately to the receivers
account. The minimum like shall be Rs. 2,00,000 with no upper ceiling. Role of the
RBI is there to monito the RTGS transfers.
3. Instant/Immediate payment system (IMPS )- It is also known as real -time transfer
of funds. no time restriction and amount should be lower in comparison to RTGS. Rs,
2,00,000 per transaction.

MOBILE BANKING- Bank in your pocket

Requirement

1. Device (mobile/tab/other instrument)

2. Internet connection
3. Internet enabled smartphone
Features:
 ● Online transactions
● checking account balance
● net banking
● fund transfer
● ordering cheque book
● credentials alteration
● Request of creating PPF
● FD creation
● checking bank statement
● request for loan etc

Payments
● Fund transfer under mobile banking
- Net banking
- UPI (Unified payments interface)- Developed by National
Payments Corporation of India ( NPCI)
it requires QR codes or scanner, UPI pin along with UPI application

● Mobile wallets

National Automated Clearing House (NACH)

It is known as an Electronic clearing house which offers all the

financial institutions a services which is called NACH which includes
Debit and credit. Every user must complete a NACH mandate
registration form on their banks website.

Banks associated with NACH

- HDFC Bank
- ICICI Bank
- State Bank of India

NACH’s goal is to make it easier for banks to conduct high or low

volume debit or credit transactions electronically.

ECS (Electronic clearing service) AND NACH

Types of NACH Mandate
- NACH debit
- NACH Credit

Functioning of NACH

Chapter no 8
Security and Precautions against Financial and Online
Frauds

Financial Frauds/ Scam and its types

These scams are connected to online financial transactions which
are done using debit/credit or prepaid cards.
When someone deprives you of your money, asset, capital or
harms your financial data using/stealing or misguiding by illegal
practices.

Types of frauds

1. Mass marketing fraud- email bombing/ spoofing

2. Investment fraud-
3. Lottery scam
4. Debit/credit card fraud
5. Affinity fraud
6. Ponzi Scheme
7. Phishing- cheating/hiding financial information (DR/CR
Card/CVV, DATE PASSWORD/PAN CARD RELATED FRUADS)
8. Credit card cloning/skimming

How to avoid frauds and scams

Unit - IV

Personal Tax

1. Personal Tax Planning

2. Basic Tax Structure
3. Income Tax Allowances & Deductions
4. Income Tax Returns
Personal Tax Planning

What is Tax?
The money that you have to pay to the Government so that it can
provide public services.

Tax Planning
Tax planning is the analysis of a financial situation or plan to ensure
all elements work together to allow you to lowest taxes. or tax
planning can be defined as the adoption of legalized ways of
reducing tax liability in a given financial year.

Why should we do tax planning?

1. lowering your tax liability
2. helps in taking advantage of changes in tax laws
3. helps to avoid deadline dread
4. gives tax-free returns
5. economic stability
Types of tax planning
1. Short-term tax planning- mainly focuses on minimizing tax
liability for a particular fiscal year (financial year starts from 1st
April-31st March). Generally, it is done at the end of the fiscal
year.
2. Long-term tax planning- it is done from the beginning of the
fiscal year for long-run benefits.
 3. Permissive tax planning- refers to the plans which are
permissible (allowed) under various provisions of law like the
Income Tax Act, 1961 (example sec 80C).
4. Purposive tax planning- When a taxpayer wants to plan taxes
with a particular financial goal in mind, it is called purposive tax
planning.

Tax Management
The Process of adhering to income tax laws and regulations is
referred to as Tax Management.
Tax avoidance
It is a legal way that taxpayers can follow to avoid paying taxes.

Tax Evasion
Tax evasion is when a person or business intentionally avoids (illegal
practices )paying their fair share of taxes. like faking or disguising
income, non-disclosure of supporting documents, non-disclosure of
cash transactions etc. It is a serious crime that carries harsh
punishments and criminal prosecution.

Methods of Tax Evasion

1. Smuggling
2. False tax returns
3. Non-disclosure of cash transactions and supportive documents
4. false financial statements
5. bribery
6. keeping money abroad
Heads of Income
1. Income from Salary
● Basic Pay
● Allowances (Taxable Allowances)
● Perquisites
● Bonus
● Gratuity- After retirement benefit
● Employee Provident Fund (EPF)- 12% of basic salary toward EPF (After
retirement benefit)
● Professional Tax- Max limit Rs. 2500 (Not applicable in Delhi State)
● ESIC- Employees State Insurance Corporation Scheme
How to calculate Gross Salary?
—---------------------------------------------------------------------------------------------------------
Gross Salary= Basic Pay+Allowance(Taxable part)+Perquisites(Taxable)+Bonus
Net Salary= Gross Salary-(Professional Tax+ESIC+EPF)
—----------------------------------------------------------------------------------------------------------
Practical Question:
1. Basic Pay- 19,000
2. House Rent Allowance- 9,000
3. Transportation allowance-1,500
4. Statutory Bonus- 3,000
5. EPF-2,300
6. Professional Tax (Paid by Employer)- 2,100
Calculate NET Salary of Mr. Karan.
Solution:
Basic Pay 19,000
HRA 9,000
Transporation Allowance 1,500
Bonus 3,000
Professional Tax 2,100
—---------------------------------------------------------------------
 Gross Salary 34,600
Less: EPF (2,300)
Less: Professional Tax (2,100)
—--------------------------------------------------------------------
Net Salary 30,200
—--------------------------------------------------------------------
2. Income from House Property (IHP)- Rental Income
Basic Structure

Gross Annual Value (GAV)- ***

(For self-occupied Property)- NIL
(For let out property- GAV( Annual Rent collected)
Less: Municipal Taxes (paid) ***
—-----------------
Net Annual Value (NAV) —-----------------
Less: Standard Deduction @30% of NAV ***
Less: Interest paid on Home loan ***
Income from House Property ____________

Practical Question 2

Rent Received 1,44,000

Interest on Home loan 30,000
Municipal Tax 10,000

Calculate IHP
Solution:
Gross Annual Value - 1,44,000
less: Municipal Taxes - (10,000)
NAV 1,34,000
Less: Standard deduction (1,34,000x30%) (40,200)
Less: Interest on home loan (30,000)
—------------------------------------------------------------------------------------------------------
INCOME FROM HOUSE PROPERTY 63,800
—--------------------------------------------------------------------------------------------------------

3. Income from Profit and Gains from Business and Profession (PGBP)
4. Income from Capital Gain
5. Income from Other Sources (IOS)- Interest income, FDs, Mutual funds
interest etc.

Taxation
Old Tax Regime- 1. Pay more tax
2. Avail more benefits
New Tax Regime- 1. Pay less tax
2. Less benefits
Illustration
Calculate Tax liability for different categories under old and new tax
regime if Gross total income is Rs. 25,00,000/-.

NEW TAX REGIME

Note: same slabs will apply to all taxpayers irrespective of their age.
 1. GROSS TOTAL INCOME= INCOME OF 5 HEADS

Salary income 100000

IHP 500000
I CAPITAL GAIN 2000000
IOS 100000
GTI= 2700000
CALCULATE TAX LIABILITY AS PER OLD AND NEW REGIME
 2. GTI-DEDUCTIONS= NET TOTAL INCOME

Exemption(Relaxation)- An exemption is part of Gross income which

is taxfree. so such value is excluded in the process of calculation of
Gross total income.

Deductions(Concession) - In case of deduction, first the income

from all different sources is added together to find out Gross total
income then the deduction is allowed as per the rule.

SOME IMPORTANT DEDUCTIONS

Interst on home loan - Sec 24 (Income from house property
chapter)
80C- max limit Rs. 1,50,000 (One lakh fifty thousand)
● LIC
● FD
● BONDS issued by NABARD
● Superannuation fund
● National saving certificate (NSC)
● ULIP (Insurance plan)
● ELSS
● Loan
● PPF
● Tution fee
80CCC- max limit Rs. 1,50,000 (One lakh fifty thousand)
● Pension funds
80CCD- Rs 50000
● Notified pension scheme (Atal pension yojna)
80 D- Rs. 25000 (Individuals) Parents (25000)
● Deduction under medical insurance
80 TTA - Rs. 10,000
● Interest on deposits in saving accounts
80 U- Deduction in case of permanent disability
1. disability- Rs. 75000
2. severe disability- 1,25,000